In line with expectations of the hazelnut market, many buyers were active this week to test the market, although there is still a lack of deals. On Tuesday, there was some short-term uncertainty when the market leader announced an adjustment to its purchase offer for hazelnut kernels in shell. The price was raised from 95.0 to 98.5 TRY/kg, as it had not been possible to cover the desired quantities in recent weeks. It is questionable whether the price adjustment will be sufficient. According to previous information, the quantity that the market leader has been able to buy as a result of the adjustment is less than 10,000 mt.
Expectations for price hikes
Many sales have apparently only been made because the sellers need liquidity at the end of the quarter to settle their liabilities in relation to financing. Therefore, the free market has not reacted significantly to the adjustment (currently the price is around 94.0 TRY/kg – 2.96 EUR/kg but there are hardly any sellers). However, sellers expect prices to rise again soon, as almost no goods are currently being delivered to local buying points, only a few exporters have already built up a buffer stock and a certain level of demand from Europe is expected in the coming weeks.
Market under strain
The opinion of buyers, on the other hand, continues to be contrary to the attitude of sellers. Because of the weak export figures and the increasing selling pressure on exporters, they continue to see the market under strain. Sellers still lack the arguments to reverse the trend of recent weeks. However, this could happen in the coming weeks when the first speculation about the size of the coming harvest begins to circulate. At the moment, however, we are seeing a trend where some sellers are prepared to offer prices on a speculative basis for the next two quarters. This has led to one or two deals, but also to head-shaking among market participants.
Why are farmers still dissatisfied despite receiving the highest prices?
In general, the mood on both sides remains quite subdued. The market has developed contrary to general expectations. As a result, an entire supply chain is dissatisfied.
In absolute terms, farmers have received the highest prices to date. However, most of them are still dissatisfied because, in view of inflation, even this increase does not cover the additional costs. The restraint has led to the level being where it is now, but the market, and the market leader in particular, has also shown limits quite quickly.
If you talk to the small traders who collect the majority of the goods, they are not satisfied either. There are quality problems and the price level is so high that most of them do not have the money to build up a certain stock. Taking into account the financing costs, however, a profitable business would hardly have been possible, so there is a certain degree of dissatisfaction here too.
Crackers are also dissatisfied because, unlike in previous years, the market leader has put prices under pressure and competition among the players is so fierce that it is almost impossible to generate significant margins. Prices were usually lower at the beginning of the harvest than in the following months. Crackers were therefore at least able to benefit from an increase in the value of their stock. This is also not the case this season, especially when the financing costs are taken into account.
Complaining exporters
Exporters always complain, but this season they have a reason to do so. They themselves were the ones who caused buyers to adopt a wait-and-see attitude with their (overly) high harvest estimates and therefore sold relatively large quantities at low prices in the run-up to the harvest. Many of them realized large losses, although most of them were smart enough to physically cover the goods at the time of sale.
However, a glance at the order books shows large gaps for the season and the ever-increasing competitive pressure makes it almost impossible to realize significant margins. The burden of financing costs is particularly high, as the business is very capital-intensive. In line with their position, some players are coping well with the situation at the moment, while others are becoming increasingly nervous about the market. Speculation has been avoided so far, but is now slowly finding its way back into the market.
Situation of the buyers?
However, it is not only the sellers who are dissatisfied this year, but also the buyers. A lower level was expected in the run-up to the season, which is why the current coverages are now a loss-making business for many. Demand has also fallen significantly due to weak consumption in Europe. The chocolate industry in particular is also struggling with sharp price increases for many other raw materials, so the persistently high level of hazelnuts is also inconvenient. There are also increasing reports of deviations in quality, punctuality and communication.
Lack of direction
Except for the Turkish Grain Board – TMO, which has achieved a lot this year with little effort, all players along the value chain are dissatisfied to a certain extent. It is clear that the partners are working against each other rather than with each other, which is not good for the industry in Türkiye and encourages competition. Overall, the hazelnut market currently lacks direction. The atypical behavior of the market leader in particular has led to uncertainty on the part of sellers and prevented some exporters from positioning themselves. Further developments are uncertain on both sides, which is why they are now moving closer together again in small steps and deals.
Unchanged high inflation
With regard to the currency markets, the euro was able to benefit again this week from the ECB’s interest rate pause. This is another reason why the export price lists have not risen on average despite the slight increase in raw materials. Next week, the monetary policy committee of the Turkish Central Bank will meet for the last time this year. Most analysts expect a further interest rate hike due to the unchanged high inflation, although there are some who expect a slower pace. Unless there is a significant deviation, the impact on the currency markets should be muted.
We expect a similar demand situation in the coming week before the market takes its leave for the Christmas break.
Bullet points
- The market leader adjusts its purchase bid from 95.0 to 98.5 TRY/kg. Due to the liquidity requirements of some sellers, the market leader is able to cover small quantities. However, prices on the free market are barely reacting.
- There is practically no new inflow of raw materials into the hazelnut market from farmers.
- The ECB’s interest rate pause is causing the euro to appreciate, which is leading to adjustments in export price lists.
- Buyers are currently in the process of covering their requirements for the coming quarter; the need for information is high, but the rate of deals is not yet high.
- Some exporters are now prepared to offer prices on a speculative basis to a certain extent.
- In general, the hazelnut market is assuming that demand this year will be lower than last year.